How to Save Your Retirement Portfolio From a Recession

  • The recent market drop may scare people away from retiring in the next few years.
  • But a financial planner says the market isn’t the only factor to consider when deciding whether to retire.
  • Consider doing a Roth conversion, delaying Social Security, and start living on a budget.

In the last six months, the S&P 500 has dropped 11.27% and the Dow Jones has dropped 6.15% at the time of this writing. While some experts say the market will eventually make a comeback, it can still be nerve-wracking to see your hard-earned 401(k) dollars seemingly disappearing minute by minute.

Insider spoke with financial planner Jay Zigmont, founder of Live Learn Plan and financial planner to hundreds of people in the FIRE (Financial Independence/Retire Early) movement, about whether or not it’s a good idea to retire during a



Zigmont says, “The market is just one part of the decision to retire. Retirement is both about a new stage of life and making sure you have the funds to pay for that new stage. With the recent downturn in the market, it’s time to reassess to see if your plan works.”

It’s “completely possible that you may not be able to afford to retire right now,” he says, but there are ways to use a recession to adjust your plan appropriately and build a new strategy with your financial planner or advisor.

Here are three steps you can take to proactively protect your retirement funds from a recession.

1. Consider converting your traditional 401(k) or IRA to a Roth account

“Now may be a good time to do Roth conversions,” says Zigmont.

A 401(k) is an employer-sponsored retirement plan where employees can contribute pre-tax income and let it grow. An IRAwhich stands for Individual Retirement Arrangement, is similar to a 401(k) but available to anyone making money, regardless of who you work for.

Traditional 401(k)s and IRAs are funded with pre-tax dollars, which means you’ll need to pay taxes when you finally use the funds in retirement. On the other hand Roth accounts are funded with after-tax dollars, which means you won’t have to pay taxes when you withdraw the funds in retirement.

Zigmont says, “When you do a conversion, you pay the taxes now, but amounts converted to a Roth IRA grow tax-free and they come out tax-free.”

He adds, “Keep in mind that a 401(k) has required minimum distributions“— or RMDs for short, withdrawals that you’re required to make from your retirement accounts annually, starting at age 72 — “so if you have a Roth 401(k), be sure to roll that to a Roth IRA after you stop work as a Roth IRA does not have RMDs.”

2. Reassess your Social Security plan

Zigmont recommends going to to download your most recent Social Security benefits statement. “Your Social Security statement will tell you how much you will get if you start claiming Social Security now and each year going forward. Each year you put off getting Social Security, the amount you get each month (for life) will go up.”

He says that Social Security benefits have a built in cost-of-living adjustment, which is 5.9% in 2022.

Some people might choose to start drawing from their Social Security benefits now, says Zigmont, but he adds this warning: “If you feel like you need to take your Social Security payment now to make up for the down market, remember, you are making a choice that impacts the rest of your life.”

3. Start living on a fixed income now to prepare for retirement

At the end of the day, the best way to recession-proof your retirement plan is to start adjusting to a lower fixed income as soon as possible. Zigmont says, “If you feel like things are going to be ‘tight,’ then it might be that you need to shift your retirement date. Start living on a budget now as if you were on a fixed income and see if you are OK with it.”

If you’re really anxious, he also suggests using financial software that can run Monte Carlo simulations, which churn out how your retirement plan will work depending on where the economy is by the time you retire. “Those simulations will give you a number that reflects the chances that you’ll run out of money,” he says.

Leave a Comment

Your email address will not be published. Required fields are marked *